Italy, Greece, Ireland, UK, and the USA.
These are some of the countries I have personally visited for its housing market opportunities. Residential and commercial property values in all these countries went up, and then dropped again. The rental yield returned to a normal range then stabilised returning to the true property value. Local business owners told me about stories of speculators that got seriously burnt, or bankrupt.
This is one of the reasons I focus on cash flow from the investments and not the capital growth or decline. The ability of the property to generate a return defines its fundamental value.
What about Australia?
The Bank for international Settlements reports that Australia households sits at 120% of GDP and is the second most indebted nation in the world, just behind Switzerland. I do not believe this level of debt is sustainable therefore just like other countries we are in for an adjustment.
I have said for years that the capital value of Australian housing is too high and an adjustment must happen. The adjustment can either be an increase in the price of rent, or the capital value must decline. Either of these changes would put the balance back into housing, having its price based on fundamentals. However, neither has happened yet. Based on history of other countries, Australia will simply follow a similar pattern with a market adjustment.
While I have purchased a few more properties over the last 4 years, finding these deals became harder and harder. Instead of 100, 10, 3, 1 ration it became more like 200, 5, 3, 1 (meaning 200 to view, 5 offers made, 3 negotiated and one accepted.) In the end it became hard work, so I stopped looking and went back to my ‘off market’ strategy.
Like anything else, the property market goes in cycles and a downward capital price cycle is already overdue. At times like this it pays to be patience and patience is one of the hardest things for an investor. As for me, I occupy myself with off market activities.
This simply means I am not in a buying cycle, instead I take the opportunity to consolidate my property position. In simple terms this includes the following:
- Refinance properties locking in rates, (recycle debt)
- Renovations, improvements, enhancements
- Maximise rental return (yield)
- Stabilise tenants, (ensure we have the right people)
- Asset protection, equity protection & caveat updates
To give you a deeper look at this scenario, you can read this news article explaining the current ‘out of balance’ position of Australia’s property market.
If you have not purchased a property just yet, do not stress. A buying cycle will return giving you ample opportunities to secure a great property deal. Speculators will be once again happy to have a person take their liability off their hands. The result? Their liability becomes your asset!
Remember patience and preparation are just some of the strategies the wealthy utilise during this part of the cycle. Learn from this key financial literacy lesson and apply it.